Jim O'Neill, a former chairman of Goldman Sachs Asset Management and former Commercial Secretary to the UK Treasury, is Honorary Professor of Economics at Manchester University and Chairman of the Review on Antimicrobial Resistance.

Comments

Jimmy always rocks. The Pound tells us time and again that the Bank of England is by far the smartest hands on central bank in the world. Most of the time, the Pound is quoted between the boundaries of the GSDEER.But at the minute uncertainty over the UK economy is spotted by the BOE, they off-the-cuff sell the pound as if there was no tomorrow, achieving about 20% undervaluation to the currencies of its major trading partners in a few days. UK style, no shame.If there is only one currency devaluing at the same time, it works.Once the country has retrieved the cyclical benefits of the move, the BOE allows the Pound to reverse course and regain the boundaries of equilibrium with its major trading partners.They did it in the eighties. In the early nineties. And also in 2008. Now the question is whether the current Pound undervaluation is a one time shot until clear skies are back, or else, whether it is just been the first shot that will be followed by additional undervaluation if Brexit ends in a rough quarrel with Europe.The joke about independent central bankers is already too old...Read more

Very learned and some interesting thoughts. But at the end of the day the market or the pound in this case doesn't tell you anything more than the sum of what everyone is feeling at any given moment. There is no wisdom in the market just view. Views moreover that can change quickly to give a completely different message.So perhaps the pound is simply telling us that the aggregate view is that things are a whole lot riskier in a riskier world and the UK seems to have embraced on expedition into "deepest darkest Africa" without a map or adequate supplies. Read more

Mr.O'Neill presented on CNN a rather optimistic view about the inconsequential effects of the Brexit over the UK economy, which 'will explore better trade deals in growth markets'.

In my view, whatever arrangement the UK seeks to find outside the EU entails risks which may prove disastrous for the UK economy:

1. An Anglo-Saxon Union built around the USA-UK-Canada- Australia-New Zealand would create for the UK the premises of the currency devaluation, with the domestic market - mainly retail swiftly sanctioned.

2. In the Commonwealth, Britain will become gradually the second most important player, with India claiming its rights of an emerging major player in the world economy. It is very unlikely New Delhi will leave to London the crown for trading in a Commonwealth trade deal beyond 2030.

3. Let's not forget that distance still plays a major role for supply chains, and the UK closest border will remain for the next 200 million years still at Dover...

According to me, it is quite paradoxical to argue that the British pound is undervalued when the IMF's current account deficit projection for 2016 is above 4%.

This means that the British pound needs to appreciate to join the equilibrium. If this true then the fair value of the British pound will imply in the medium run a permanent current account deficit.

I acknowledge that the British economy is very open to cross-border capital flow and that it is difficult to have precise estimates of its fair value with model based on trade flows like the FEER model.

However, according to the empirical evidences about the current account dynamic (i.e. that they are mean-reverting), it is quite difficult to argue that a current account deficit of 4% is an equilibrium value.

The debate is still open as the British economy is conundrum from this perspective.

Thanks for sharing your view.

My post on this question: http://www.jamelsaadaoui.com/was-the-british-pound-overvalued-before-the-brexit/

The decline in the pound only confirms the global currency system is that by design it is fairly closed. This means relative value tends to merely shift back and forth between the four major currencies that dominate the system, this is the main reason currencies appear more stable than they really are.

It only becomes a real problem for governments to deceive us as to the real value of our currency when this bond is broken. Unstable currency markets can be a precursor to massive shifts in value and a sudden drop in confidence. It is logical to think that in such a situation insiders would be the big winners. More on this subject in the article below.

http://brucewilds.blogspot.com/2016/08/currency-games-scream-major-risk.html Read more

The models the author presents here are an attempt to make him sound Olympian, but the truth is all such models have assumptions built into them, and the assumptions built into his models he hasn't bothered to share with his audience. This immediately turns his article into techno-babble. What he needs to do , at a minimum, is to include links to discussions of the assumptions being made.

Blind Freddy's dog can see that Brexit is likely to stuff the City, and that's at least 10% of UK GDP leaving home. S&P have already talked about the risks here recently. British "manufacturing" is increasingly dependent on bits made elsewhere. As such it will be adversely affected by a declining exchange rate.

Worse, it seems the UK government hasn't the faintest idea what it would like from the EU, beyond having its cake and eating it too. That sounds like a recipe for continuing chaos. All of this one can learn from publically available sources. It should be enough on its own to frighten most of us; Britain is currently doing its best to be a very unattractive place to invest one's money. Read more

Jim, if only life was so simple. The markets are a large bed where everyone is in it, playing his own game....As far as the UK is concerned, the current government is trying to create imaginary or illusionary beds... Read more

Interesting. But I think the the rapid depreciation of the British pound and the prospects for a balance in overall payments strongly illustrates how the financial sector's ability to cheaply produce and sell financial assets can undercut the ability of other sectors to produce and sell goods and services abroad. Britain's prospective loss of passporting privileges in the EU has undercut its ability to produce and sell those cheap assets abroad, and effectively lifted a burden from the real economy. Donald Trump should take note. If he really does want to benefit his supporters in the rust belt, he may want to start with restraints on the US financial industry. Read more

Chances are that the markets will be just as preoccupied and flighty about events outside the UK. The forecast may as well be cloudy with a risk of meatballs. Whilst the UK erecting a trade barrier with its nearest and largest customer is barking mad dogs in the midday Sun there is the sad fact that the EU remains a dysfunctional and at times hillbilly family that sometimes looks eerily like Pablo Picasso's Guernica painting.

If offered membership of the EU today would anybody rush to join other than with the sweetener of cash handouts, aka negative contributions. Answers on a postcard to - Quartier Europeen, Strasbourg. Read more

PS On Air: The Super Germ Threat

NOV 2, 2016

In the latest edition of PS On
Air
, Jim O’Neill discusses how to beat antimicrobial resistance, which
threatens millions of lives, with Gavekal Dragonomics’ Anatole Kaletsky
and Leonardo Maisano of
Il Sole 24 Ore.

Subscribe to our Newsletter

Subscribe to our Newsletter

Sign up to receive newsletters about what's being discussed on Project Syndicate.

EmailReceive our Sunday newsletterA weekly collection of our most discussed columnsReceive our PS On Point newsletterStay informed of the world's leading opinions on global issues

Why not register an account with us, too? You'll be able to follow individual authors (to receive notifications whenever they publish new articles) and subscribe to more specific, topic-based newsletters.

Project Syndicate provides readers with original, engaging, and thought-provoking commentaries by global leaders and thinkers. By offering incisive perspectives from those who are shaping the world’s economics, politics, science, and culture, Project Syndicate has created an unrivaled global venue for informed public debate.